JB Hi-Fi's Intangible Assets: Analysis Based on the 2017 Report

This report provides an analysis of JB Hi-Fi's intangible assets as of June 30, 2017, focusing on the composition and accounting policies related to these assets. The primary components include goodwill, brand names, location premiums, and rights in profit share. Goodwill, which constitutes about 75% of the intangible assets, is recognized based on the excess price paid over the fair value of identifiable assets during business acquisitions, aligning with AASB 138 standards. The report highlights a significant increase in goodwill due to the acquisition of “The Good Guys.” The company's policy of not recognizing internal goodwill is also consistent with AASB 138. References to the company's annual report are provided to support the analysis.

Question 3
Intangible assets are referred to those which do not have any physical existence. As of June
30, 2017, the intangible assets for JB Hi Fi amount to $1.026.6 million. The composition of
the intangible assets is as highlighted below (JB-Hi-Fi, 2017).
 Goodwill = $ 736.3 million
 Brand names = $ 284.4 million
 Location premiums = $ 2.4 million
 Rights in profit share = $ 3.5 million
A brief description of the above intangible assets is mentioned below.
1) Goodwill – Typically goodwill refers to the value which is attached to the customer
base, brand name, employee relation and similar aspects on account of which a
premium valuation is given to a target firm which is over and above the identifiable
assets of the company.
2) Brand names – This is a significant asset especially in organised retail business since
it enables the business to command a premium over other competitors and also secure
higher sales. The company on account of its history has established a credible brand
name in the market which serves as a key intangible asset for the company and
therefore is recognised here.
3) Location Premium – In the organised retail business, having stores located in
premium locations is imperative since the footfalls for these locations is typically
higher and hence result in higher sales. Further, the supply of premium real estate is
limited, hence the premium location stores that company has serves as an intangible
source for the company. It is imperative that the asset being captured is the location
and not the store.
4) Rights in profit share – The company has rights to receive some share in profit of
certain entities and assets and this right is regarded as an intangible asset.
The relevant screenshot from the company’s annual report with regards to the breakup of the
intangible assets is indicated below.

It is apparent rom the above that about 75% of the intangible asset is in the form of goodwill.
With regards to goodwill recognition on business acquisition, the company policy is that the
goodwill will be computed on the basis of the excess price that the company pays over the
fair value of the identified assets of the target business. This policy of the company is in line
with the appropriate treatment for recognition of goodwill as recognised in AASB 138. Also,
the accounting policy of the company is consistent with AASB 138 where internal goodwill
is not recognised (JB-Hi-Fi, 2017).
Also, it is noticeable that for the year ending on June 30, 2017, there was a significant jump
in the goodwill on the books of the company owing to the acquisition of “The Good Guys”.
This increase in goodwill amounted to $ 701.5 million (JB-Hi-Fi, 2017).
Thus, Goodwill = Selling price paid - Fair value of identifiable assets of the target
business/firm
The relevant screenshot with regards to the company’s goodwill recognition policy is
indicated below (JB-Hi-Fi, 2017).

References
JB Hi Fi (2017) Annual Report FY2017, [online] Available at
https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf [Assessed on May
22, 2018]